Le modèle Mundell-Fleming: Au cœur de la macroéconomie internationale ( Culture économique t. 7) (French Edition) – Kindle edition by Jean Blaise Mimbang. 17 juil. traditionnel de Mundell-Fleming a ensuite souligné la dichotomie . () a par exemple proposé récemment, le critère d’homogénéité des. View Notes – Chapitre 4 – from ECONOMIE at Université de Nantes. Modle de Mundell-Fleming IS-LM en conomie ouverte A partir du modle de.

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To maintain the fixed exchange rate, the central mudnell must accommodate the capital flows in or out which are caused by a change of the global interest rate, in order to offset pressure on the exchange rate. This puts pressure on the home currency to depreciate, so the central bank must buy the home currency — that is, sell some of its foreign currency reserves — to accommodate this outflow.

The IS curve is downward sloped and the LM curve is upward sloped, as in the closed economy IS-LM analysis; the BoP curve is upward sloped unless there is perfect capital mobility, in which case it is horizontal at the level of the world interest rate.

Sargent Adam Smith Knut Wicksell. Thus fleminb payments flows into or out of the country need not equal zero; the exchange mmundell e is ds given, while the variable BoP is endogenous.

But under fixed exchange rates, the money supply in the short run at a given point in time is fixed based on past international money flows, while as the economy evolves over time these international flows cause future points in time to inherit higher or lower but pre-determined values ls the money supply.

Results for a large open economy, on the other hand, can be consistent with those predicted by the IS-LM model. If the central bank is maintaining an exchange rate that is consistent with a balance of payments surplus, over time money will flow into the country and the money supply will rise and vice versa for a payments deficit.

That being said, capital outflow will increase which will lead to a decrease in the real exchange rate, ultimately shifting the IS curve right until interest rates equal global interest rates assuming horizontal BOP. The Mundell—Fleming model portrays the short-run relationship between an economy’s nominal exchange rate, interest rate, and output in contrast to the closed-economy IS-LM model, which focuses only on the relationship between the interest rate and output.


If the central bank were to conduct open market operations in the domestic bond market in order to offset these balance-of-payments-induced changes in the money supply — a process called sterilizationit would absorb newly arrived money by decreasing its holdings of domestic bonds or the opposite if money were flowing out of the country.

Basic assumptions of the model are as follows: In particular, it may not face perfect capital mobility, thus allowing internal policy measures to affect the domestic interest rate, and it may be able to sterilize balance-of-payments-induced changes in the money supply as discussed above.

A higher e leads to higher net exports.

Consider an exogenous increase in government expenditure. The denominator is positive, and the numerator is positive or negative. When the latter goes dleming, the BoP curve shifts upward by the same amount, and stays there. In the IS-LM model, the domestic interest rate is a key component in keeping both the money market and the goods market in equilibrium. This keeps the domestic currency’s exchange rate at its targeted level. Under flexible exchange ratesthe exchange rate is the third endogenous variable while BoP is set equal to zero.

Under less than perfect capital mobility, the depreciated exchange rate shifts the BoP curve somewhat back down. Higher lagged income or a lower real interest rate leads to higher investment spending. The reason is that a large open economy has the characteristics of both an autarky and a small open economy. But for a small open economy with perfect capital mobility and a flexible exchange rate, the domestic interest rate is predetermined by the horizontal BoP curve, and so by the LM equation given previously there is exactly one vleming of output that can make the money market be in equilibrium at that interest rate.

Under flfming fixed exchange rate system, the central bank operates in the foreign exchange market to maintain a specific exchange rate. But under perfect capital mobility, any such sterilization would be met by further offsetting international flows.

Mundell–Fleming model

An expansionary monetary policy resulting in an incipient outward shift of the LM curve would make capital flow out of the economy. Under perfect capital mobility, the BoP curve is always horizontal at the level of the world interest rate. The Mundell—Fleming model applied to a small open economy facing perfect capital mobility, in which the domestic interest rate is exogenously determined by the world interest rate, shows stark differences from the closed economy model.


In the end, the interest rate stays the same but the general income in the economy increases. From Wikipedia, the free encyclopedia. A decrease in the money supply causes the exact opposite process. Reprinted in Mundell, Robert A. If there is pressure to appreciate the domestic currency’s exchange rate because the currency’s demand exceeds its supply in the foreign exchange market, the local authority buys foreign currency with domestic currency to increase the domestic currency’s supply in the foreign exchange market.

Increased government expenditure shifts the IS curve to the right. However, in reality, the world interest rate is different from the domestic rate. Development Growth Monetary Political economy.

Mundell–Fleming model – Wikipedia

The Mundell—Fleming model under a fixed exchange rate regime also has completely different implications from those of the closed economy IS-LM model. The strengthening of the currency will mean it munsell more expensive for domestic producers to mundelll so net exports will decrease therefore cancelling out the rise in government spending and shifting the IS curve to the left. But in the Mundell—Fleming open economy model with perfect capital mobility, monetary policy becomes ineffective.

In a system of fixed exchange rates, central banks announce an exchange rate the parity rate at which they are prepared to buy or sell any amount of domestic currency.

An increase in government expenditure shifts the IS curve to the right. This result is not compatible with what the Mundell-Fleming predicts.

Therefore, the rise in government spending will have no effect on the national GDP or interest rate. The BoP curve shifts down, foreign money flows in and the home currency is pressured to appreciate, so the central bank offsets the pressure by selling domestic currency equivalently, buying foreign currency.

Again, this keeps the exchange rate at its targeted level. In the very short run the money supply is normally predetermined by the past history of international payments flows. Views Read Edit View history. Nevertheless, Dornbusch concludes that monetary policy is still effective even if it worsens a trade balance, because a monetary expansion pushes down interest rates and encourages spending.

One of the assumptions of the Mundell—Fleming model is that domestic and foreign securities munvell perfect substitutes.